Tag: CBA

Regulator’s Inquiry of Commonwealth Bank of Australia’s Culture and Practices Is Credit Negative

From Moody’s

On Monday, the Australian Prudential Regulation Authority (APRA) announced that it would establish an independent prudential inquiry into the governance, culture and accountability framework of Commonwealth Bank of Australia (CBA, Aa3/Aa3 stable, a26). APRA’s focus on CBA’s culture and practices is credit negative and could damage the bank’s reputation as well as compel it to incur costs and use resources to address any mandated remedial actions.

APRA has stated that it will make the findings of its review public and that the inquiry will take around six months from its formal commencement. APRA’s regulatory review is the latest of several regulatory issues for CBA. On 3 August, the Australian Transaction Reports and Analysis Centre (AUSTRAC) commenced proceedings against CBA for non-compliance of the Anti-Money Laundering and Counter-Terrorism Financing Act. AUSTRAC alleges that CBA did not carry out a specific assessment of the money laundering and terrorism financing risk of intelligent deposit machines until three years after their introduction, and inadequately monitored and reported suspicious transactions.

We expect more information about the timing of AUSTRAC’s proceedings at the first case-management hearing scheduled on 4 September. We also expect CBA to file a statement of defense. CBA also faces a potential class-action lawsuit from shareholders that allege the bank did not meet its continuous disclosure obligations in relation to the AUSTRAC allegations. The Australian Securities and Investments Commission (ASIC) also has announced that it will investigate whether CBA did not meet these obligations.

In recent years, CBA has dealt with a number of conduct-related issues that have negatively affected the bank’s reputation. In August, ASIC announced that CBA would refund more than 65,000 customers approximately AUD10 million, after selling them unsuitable consumer credit insurance. In March 2016, the bank’s life insurance business, CommInsure, was accused of deliberately avoiding or delaying paying claims to its customers, but in March 2017, ASIC cleared CommInsure of any breaches of the law. However, ASIC identified areas that CBA should improve, which CBA has already done or is committed to doing. Also, CBA in 2014 announced an Open Advice Review program relating to the poor quality of advice and compliance breaches by its financial planning businesses, Commonwealth Financial Planning and Financial Wisdom.

Operational and compliance problems of this nature highlight the challenges of maintaining tight controls at large and complex institutions that span multiple business lines such as retail, commercial and institutional banking, insurance and wealth management. We note that the strong profitability of Australia’s major banks’ domestic franchises and the low credit costs amid an extended period of unusually low interest rates elevates the risk that banks become complacent in the their approach to operational and governance risks.

CBA’s Potential Exposure To Foreign Jurisdictions

From The New Daily.

The Commonwealth Bank could face big penalties on top of estimates of $300-$500 million fines in Australia if international regulators are forced to act over its breaches of rules around money laundering and terrorism financing, experts say.

Foreign regulators have been far harder on banks than their Australian counterparts, levying billions of dollars in penalties in recent years.

The bank is to be investigated by regulator APRA in an unprecedented and wide-ranging review of its governance, culture and accountability structures as a result of its latest scandal.

But if the tentacles of its misdeed spread into foreign jurisdictions, then international regulators could get involved, leaving the bank open to potentially huge penalties.

“The US Federal Reserve and potentially the Securities and Exchange Commission could get involved if any transactions involved US dollars,” said independent economist Saul Eslake.

“Jurisdictions like Singapore, the UK, the EU could be involved or even China if it felt it was a sovereignty issue,” said Pat McConnell, honorary Fellow in Applied Finance at Macquarie University.

In recent years, major international finance scandals around the rigging of benchmark interests rates in UK, European, US and Japanese markets have led to massive fines totalling over $9 billion for some of the biggest names in international banking.

On these scandals “banking regulators have led the charge but they have also involved the US Department of Justice”, Mr McConnell said.

If the CBA scandal were to spill out into foreign markets the effects could be wide-ranging. As well as fines, “if the transactions involved US dollars, regulators could suspend or impose conditions on the use of CBA securities in the US market”, Mr Eslake said.

“That could make it hard to issue shares in the US or for investors to trade in Commonwealth Bank bonds.”

Brian Johnson, a banking analyst with CLSA, pointed to the danger of international repercussions for CBA in a note to investors issued this week.

“The problem is that many of these transactions identified by AUSTRAC saw funds remitted outside of Australia which could leave CBA vulnerable to fines in those domiciles where penalties for bank misbehaviour have been much bigger than in Australia,” he said.“Furthermore, bank counter parties will likely be looking at CBA exposures in the light of these alleged AML [money laundering regulation] breaches.”

That, in lay persons terms, means that other banks may cut exposures to CBA because they think it has become a business risk or charge more to do business with it. That, in turn, would affect CBA’s profits.

“With CBA having facilitated the transfer of AML breached funds to Malaysia and Hong Kong, those country’s regulators will be reviewing CBA for potential AML fines,” Mr Johnson said.

“New Zealand regulators are believed to be reviewing CBA’s intelligent deposit machines.”

Way beyond a  ‘simple coding error’

Mr Johnson said that CBA’s misdeeds go “way beyond a ‘simple coding error’” as the bank had claimed.

“The narrative in the AUSTRAC full claim (against CBA) is far more salacious, with tales of laundering drug monies, transferring funds for terrorism, ignoring recurring concerns of branch staff regarding implausible cash deposits and ignoring directives from the Australian Federal Police,” Mr Johnson said.

“While CBA is likely to go through the motions of preparing a defence to AUSTRAC’s claims it’s likely CBA would seek an out of court settlement to avoid the prolonged adverse detailed reporting that would inevitably follow court proceedings.”

Mr Johnson said he believed CBA could face Australian penalties or settlements of $300 million to $500 million, plus the risk of offshore fines.

APRA inquiry into CBA is the new comedy in town

From The Conversation.

Just when you thought it could not get any more bizarre, the Australian Prudential Regulation Authority (APRA) announces it will open its new season with an inquiry into the Commonwealth Bank of Australia (CBA), specifically focusing on “governance, culture and accountability frameworks and practices within the group”.

This is an unexpected twist in the long running farce that is Australian banking regulation.

And the Treasurer, Scott Morrison, has weighed in on cue to lead the booing of CBA with as nice a piece of comedic irony that one could see anywhere, even in London’s West End:

Australia’s banks are well capitalised, well regulated and financially sound. However, there have been too many cases and events that have damaged their reputation and standing in the eyes of many Australians, that warrants our regulators taking action now.

The well-regulated bit brought the house down as did the next gag – that the inquiry showed a banking royal commission was not needed as the government and regulatory agencies were already taking action against the banks.

Yeah, already taking action – just five minutes ago!

The audience would have roared with laughter, especially when told they would not have to pay to see the show, but that CBA would be picking up the tab. Ice-creams all around at the interval, and CBA can pay for it out of the bonuses that have just been taken back from the departing CEO and the management chorus line.

But the opening of this new show raises some questions for the producers. Why now? Why CBA? And why, of all people, APRA?

Why now is obvious. A few weeks ago, a new sheriff in town, AUSTRAC, pointed out some serious criminals had been using the bank as a money laundromat.

At first the board ignored this upstart, but were woken out of their cosy slumber when AUSTRAC had the temerity to take them to court. Their usual first reaction, of fighting to the end (with their shareholders’ money) won’t work this time and they have been scrambling ever since.

Why CBA? Ineptitude mixed with hubris. There has been a long litany of scandals where CBA has been part of the cast, but like the heroine of the old movies, in the past it had been able to escape just before the train ran over it. This time the CEO forgot to bring the knife to cut the ropes and CBA has been squashed.

But why no other banks? Why not indeed, as the other three of the big four banks, like CBA, have been part of a long-running production in the Federal Court to do with the small matter of manipulating interest rate benchmarks. The banks had hoped this show would have closed by now, like the foreign exchange benchmark scandal, with a payment of a token gold coin donation.

But the big question on the audience’s lips is why APRA?

In Australia, the conduct regulator, that is the “culture guy”, is supposed to be the Australian Securities and Investment Commission (ASIC) but this time it does not get a look in – why?

It’s because the government doesn’t like ASIC. Its leading man, Chairman Greg Medcraft, has already been told he is no longer needed and the new leading man has not been announced yet.

In very bad timing for the government, the scandal has blown up just before the rumoured replacement could be unveiled. Try that move today and the critics would go feral.

Not that APRA has great credentials on “culture” matters. It is made up of more technicians than creative types. As the official insurance regulator, APRA missed the whole bit about culture when the CommInsure scandal blew up. And critics have been very quiet on the fact that money laundering is part of APRA’s operational risk mandate. But, like Marcel Marceau, APRA doesn’t say much about anything such as the fact that bank bill swap rate benchmark manipulation is also part of its operational risk responsibilities.

As for “culture”, APRA actually tried out for that role a few years ago, but wasn’t called back for a final audition – the leading role went to ASIC but at the time it was not bent out of shape too much.

In the UK, the so-called “twin peaks” of banking regulation, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), actually talk to one another and work on common problems, such as whistleblowing.

In Australia, APRA is the prudential regulator which means its main job is to ensure that banks can meet their “financial promises”. By starting this inquiry, does APRA really want us to believe that the board and management at CBA pose a threat to the ability of the largest bank in Australia to repay its financial commitments? Surely not! But maybe APRA has been pushed into this unusual role by backstage prompting from the Treasurer – anything to head off a royal commission.

So why has this inquiry not been shared between ASIC and APRA, surely in this case the combined expertise would help create a truly independent report? The two regulators are officially part of the Council of Financial Regulators (CFR), which is headed by the RBA, and whose role is to coordinate “Australia’s main financial regulatory agencies” – boy if ever cooperation was needed.

So off we go with a six month run of a completely new production. The script hasn’t been written yet (terms of reference to follow) – maybe they are going to workshop it first? The actors are already lining up for auditions and venues are being hired. The problem is we don’t know whether it will be farce or fiasco, but it will definitely run and run.

Author: Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie University

CBA CEO apologises to brokers

From The Adviser.

Ian Narev, the outgoing chief executive officer of the Commonwealth Bank, has apologised to brokers for some of the “uncertainties” it has caused.

Speaking at Aussie’s biannual conference on 28 August, Mr Narev touched on the changes in credit policies and rates, etc., following regulatory changes on certain segments of the home lending market, as well as the “difficulties” the bank has had in implementing them.

Mr Narev said: “Given this is the first time many of the banks have got used to things like investor home loan [changes] and interest-only caps, the transition to these caps has been difficult and has caused a little bit of uncertainty for people in this room that we’re really sorry about. And we acknowledge it.

“I think that we are in an environment where there is still good lending to be done, but it will probably just be a little bit calmer than they had be, and that is probably a good thing.”

The CBA CEO also emphasised that it was “very committed” to the broker channel, but understood that there was “ongoing work” that needed to be done.

Noting the completion of CBA’s purchase of the remaining shares in Aussie last week, Mr Narev said: “I think the key is, we bought Aussie (initially the third ownership in 2008 building up to today) because it is such a successful business under its current business model and we don’t want to change it.

“John [Symond] has said that the key to Aussie’s success has been its independence, customer focus, not being tied to any particular bank, so we’d be crazy to change that. So, it’s more of the same, more successful. So as John says, we [can] step back from it and let it continue its great momentum.”

Brokers are “good for customers”, said Mr Narev.

He acknowledged that while the bank has “never shied away” from wanting to do its own business through its branches and direct channels, using a broker was “good for customers”.

He said: “A large number of Australians want to go through a broker, and that’s why we deal with brokers and have a relationship with Aussie, because it’s good for customers. And we’re very committed to the channel. We understand that as part of that, there is ongoing work and investment that we need to do in our processes to make it easier to deal with us, and that’s something we listen to very carefully and we aim to continuously improve, because you have to be good at it to be competitive in the channel.”

The CEO CBA continued: “Ultimately, you want your proprietary channel to be as good as possibly can be and your relationship with the brokers to be as good as it can possibly be, and let the customer make the choice. And at the heart of this, in my mind, is making sure you’re customer-focused and help the customer in whatever way he or she wants, whether that’s through our branches or website or through a broker.”

Mr Narev later told The Adviser: “We didn’t buy the [Aussie] business only to sell it; we bought it because we have a great relationship with Aussie. We see it as strategically important, so there is no change as a result of the change in ownership.”

‘Trust in the bank has weakened’

Speaking on the morning of the announcement that APRA was to hold an independent inquiry into the bank’s “governance, culture and accountability frameworks and practices”, Mr Narev conceded that “trust in the bank has been weakened”.

He said: “What APRA has announced this morning is that it wants to take an independent look into a number of frameworks in the way we manage business in certain ways. [It comes] in the response to the fact that, over recent times, trust in the bank has been weakened. That is undeniable.

[But] we’re very confident in the practice of the Commonwealth Bank, and we’re also very confident that we’re all focused in the right direction…. The reality is that in the modern world, the public needs confidence and therefore APRA has obviously made this announcement that it wants to hear from some independent people as to how the bank is going versus hearing form us. That has our full support and cooperation.”

Mr Narev continued: “What we can see here is a very strong, highly respected prudential regulator, APRA, saying that, in order to make sure public confidence is as high as it can be, let’s have an independent process … where people can [hear from] voices other than the voices inside the banking system.”

He added: “We welcome it, and we think APRA is the right body to be administering that and we will be fully cooperative.”

When asked about whether he believed that there could be any reputational damage to Aussie brokers, as a result of some of the negative press circulating about CBA, Mr Narev emphasised that while CBA owned the company, Aussie was independent.

He said: “People here work for Aussie … nothing changes. But recognising that Commonwealth Bank is the owner of Aussie home loans, we know that people have an interest in us.

“What we can tell people — and make sure that people are very clear about — is where we have made mistakes, we will put them right…. And what people here can have confidence in is that we have a long-term view of the business. We will manage it for the long term, build trust, strengthen reputation and do whatever we can to make sure that Aussie is successful as its always been.

“As an owner, our sole goal is to keep the business successful as it has been, and the logic tells me to keep it going as it’s been going.”

Chairman of Aussie John Symond also publicly gave his backing to CBA at the conference.

When asked his thoughts on the potential negative reputational impact CBA could have on brokers, Mr Symond said that he obviously felt “disappointment” but added that bad things do happen.

Noting that he was not privy to the details of what has happened or what is going to happen, he said that he remained a “huge supporter of the Australian banking system”.

He added: “I believe in the Australian banking system going forward and obviously have a close association with Commbank. I’m confident that they have the people, the skills, the belief, the vision, the culture that whatever crap’s happened, they’ll fix it.

“Do we like what’s happened? Obviously, no. But they will fix it.”

APRA could have investigated CBA years ago

From The Conversation.

The Australian Prudential Regulation Authority (APRA) has become the second regulator to independently investigate the Commonwealth Bank of Australia. Experts say the inquiry puts the regulator in the tricky position of being tough on bank scandals but juggling its close relationship with the government and the CBA.

The inquiry follows civil proceedings launched against the bank for being complicit in money laundering.

“APRA cannot leave this deterioration in the public’s trust and confidence in our banks to fester for any longer,” says Eliza Wu, from the University of Sydney.

The investigation will be run by an independent panel, appointed by APRA. It will run for six months after which the regulator will receive a final report, to be made public.

The inquiry focus will be on governance, culture and accountability frameworks at the CBA. APRA Chairman Wayne Byres said:

A key objective of the inquiry will be to provide CBA with a set of recommendations for organisation and cultural change, where that is identified as being necessary.

The inquiry will have the power to compel CBA employees to provide information at its request, notwithstanding anything to the contrary in a confidentiality agreement. But it will not have the power to compel witness statements from people outside the organisation, which a royal commission would have.

The government has come out in support of the inquiry. But the timing of the response has raised questions about whether the regulator should have acted sooner.

“Morrison has stated that APRA is independent, and that this is APRA’s decision, not his. But the timing raises questions in light of the Treasurer’s obvious pique, motivated no doubt by the political capital that the Turnbull government has expended resisting a royal commission – no mean feat for a government with a one seat majority and trailing badly in the polls,” says Andy Schmulow, from the University of Western Australia.

APRA’s ability to prosecute the CBA relies on prudential standards which set out minimum foundations for good governance. But Schmulow says APRA has had many opportunities to investigate this, since its introduction in 2015.

“The question is whether APRA’s announcement of an inquiry should have come earlier – possibly years earlier – and if so whether APRA’s announcement today is mere coincidence, or whether it is responding to pressure from the Treasurer,” he says.

Academics agree that APRA is the best agency to run an inquiry on the CBA, due to the agency’s close relationship with the banks and knowledge of the industry.

“APRA is really the only agency which could do it. It already has a team focused on each of the banks. None of the other agencies has any deep knowledge of how banks work,” says Rodney Maddock, from Monash University.

“The banks and the regulators are involved in regular two-way conversations. Such interaction is essential to the way Australia supervises its banks, rather than launching legal cases at each other. Most countries regard our regulatory model as one of the best in the world.”

The CBA has faced a series of scandals involving its insurance and financial advice and planning arms and most recently for not complying with the Anti-Money Laundering and Counter-Terrorism Financing Act.

The inquiry puts the regulator in a difficult trade-off in dealing with threats to financial security and creating unfair competition, if its perceived to be focusing too much scrutiny on one bank.

“If APRA is not seen to be asking serious questions into how this could have come about and to conduct a critical evaluation of CBA’s risk management framework and the checks and balances that are meant to be in place, there is a danger that depositors may start pulling out their savings… we end up with a liquidity drainage out of our banking system and a major disruption to credit supply,” Eliza Wu says.

CBA is the largest bank in Australia by total assets and by the amount of deposit funding that it has.

The inquiry might also have ramifications for other cases yet to be launched by international regulators against the bank.

“Reports indicate that Hong Kong and Malaysian authorities are requesting information from CBA about cross-border anti-money laundering and counter terrorism failures. What would be of even greater concern is that any transactions that involve US dollars would have to go through and be cleared in New York, and in the past the US authorities have taken steps against, among others, Australian entities for illegal conduct. This includes conduct that went nowhere near the US. So this potentially opens multiple battle fronts for CBA both foreign and domestic,” says Andy Schmulow.

Author: Jenni Henderson, Editor, Business and Economy, The Conversation

APRA Probes CBA

The Australian Prudential Regulation Authority (APRA) today announced its intention to establish an independent prudential inquiry into the Commonwealth Bank of Australia (CBA) focusing on governance, culture and accountability frameworks and practices within the group.

Of note is their perspective that capital security is not sufficient to guarantee the long term security of the financial system, – culture and accountability are critical too. Of course the big question will be – is CBA an outlier?  Does this also provide more weight to calls for a broader Royal Commission?

The prudential inquiry will be conducted by an independent panel, to be appointed by APRA. Subject to settling the final terms of reference, it is anticipated that the panel will provide a final report to APRA around six months from the formal commencement of the inquiry, and that this report will be made public.

APRA Chairman Wayne Byres said the decision to initiate a prudential inquiry followed a number of issues which have raised concerns regarding the frameworks and practices in relation to the governance, culture and accountability within the CBA group, and have damaged the bank’s reputation and public standing.

Mr Byres said: “The overarching goal of the prudential inquiry is to identify any core organisational and cultural drivers at the heart of these issues and to provide the community with confidence that any shortcomings identified are promptly and adequately addressed.

“CBA is a well-capitalised and financially sound institution. However, beyond financial measures, it is also critical to the long-run health of the financial system that the Australian community has a high degree of confidence that banks and other financial institutions are well governed and prudently managed.

“The Australian community’s trust in the banking system has been damaged in recent years, and CBA in particular has been negatively impacted by a number of issues that have affected the reputation of the bank. Given its position in the Australian financial system, it is critical that community trust is strengthened. A key objective of the inquiry will be to provide CBA with a set of recommendations for organisation and cultural change, where that is identified as being necessary.

“The Chairman and CEO of the CBA have assured me that the bank will fully cooperate with the inquiry, and APRA welcomes that cooperation,” Mr Byres said.

Conduct of the inquiry

The names of the panel members and the agreed terms of reference will be finalised and published at the commencement of the inquiry. The costs of the inquiry will be met by CBA.

Broadly, the goal of the inquiry is to identify any shortcomings in the governance, culture and accountability frameworks and practices within CBA, and make recommendations as to how they are promptly and adequately addressed. It would include, at a minimum, considering whether the group’s organisational structure, governance, financial objectives, remuneration and accountability frameworks are conflicting with sound risk management and compliance outcomes.

The independent panel would not be tasked with making specific determinations regarding matters that are currently the subject of legal proceedings, regulatory actions by other regulators, or customers’ individual cases.

CBA says:

The Commonwealth Bank of Australia today acknowledges and supports the Australian Prudential Regulation Authority’s announcement of an independent prudential inquiry. The inquiry, which will focus on governance, culture and accountability frameworks and practices, will have the Bank’s full cooperation.

The Chairman of CBA, Catherine Livingstone AO, said: “CBA recognises that events over recent years have weakened the community’s trust in us. We have been working hard to strengthen trust, and will continue to do so. We welcome this opportunity for independent parties to review the work we have already undertaken and advise on what more we can do.”

“APRA’s oversight of this inquiry will ensure the independence and transparency needed to reassure all our stakeholders.”

CBA Chief Executive Officer, Ian Narev said: “We are confident that our 50,000 people come to work each day to give their best, for the benefit of our customers. At the same time, we know that our mistakes have hurt our reputation.”

“An independent and transparent view on the work we have done, and the work we still have to do, is an important element of strengthening trust. So this inquiry has our full support, to ensure it is as effective as possible.”

CBA also notes APRA’s confirmation today that the Bank is well capitalised and financially sound.

CBA hungry for broker business

From The Adviser.

Australia’s biggest bank could be making an aggressive play to win broker business after losing a significant amount of home loans through the third-party channel in recent months.

While its biggest rivals NAB and ANZ have been steadily increasing their share of broker-originated mortgages, major lender CBA saw its third-party flows drop by 8 per cent over the 2017 financial year.

The fall was more pronounced in the second half. For the six months ending June 2017, brokers wrote just 38 per cent of new home loans for the retail banking services, down from 46 per cent on the prior comparative period.

Regulatory measures to curb interest-only lending, introduced in March, have been a key driver. However, one Sydney broker believes that CBA is now back in business.

FirstPoint broker Chris Pryer told The Adviser that the major bank is marketing “some very competitive rates” at the moment and appears to have streamlined its third-party services.

“I know there are some other lenders with sharp fixed rates out there at the moment, but CBA are matching them, if not bettering them,” Mr Pryer said. “They are also giving large discounts on variable rates.

“Their turnaround times are still within 24 to 48 hours. We spoke to them this week, and by the sounds of things they are very much back on. They have delivered on the deals we have given them so far.”

Earlier in the year, CBA used brokers as a lever to control its interest-only mortgage volumes following instructions from APRA. For a period of time, CBA stopped refinancing investor mortgages through the third-party channel. Any CBA customers with an investor home loan looking to refinance would have to visit the bank directly.

The management of regulatory caps is now creating some interesting dynamics in the home loan market, such as price discounting, to win more business and rate hikes to cool demand.

“Different banks are turning the tap on at different times when they get their back office in order,” Mr Pryer said.

CBA to face shareholder class action battle

Law firm Maurice Blackburn Lawyers has united with Australia’s largest litigation funder IMF Bentham to pursue the largest Australian Securities Exchange (ASX) listed company, Commonwealth Bank of Australia (CBA).

The potential class action announced by Maurice Blackburn and IMF Bentham today, looms as the largest shareholder class action the country has seen.

CBA’s 800,000-odd registered shareholders suffered a significant share price drop on the back of news that Australia’s financial intelligence and regulatory agency, AUSTRAC, had initiated legal proceedings against the CBA alleging serious and systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

Online registrations are now open for aggrieved shareholders who purchased ordinary CBA shares during the period from 17 August 2015 to 3 August 2017 and still held some or all of those shares on until after 1pm on 3 August 2017.

“AUSTRAC alleges that CBA contravened the AML/CTF Act on more than 53,000 occasions. The AUSTRAC allegations are extensive and it is astounding that the market would not be advised of such serious and repeated breaches as soon as the company became aware of them,” National Head of Class Actions at Maurice Blackburn, Andrew Watson said.

“Instead the CBA has said that its Board was aware of the breaches in the second half of 2015 but chose to say nothing to the ASX until 4 August 2017.

“As the largest company on the ASX shareholders would expect the CBA to take a leadership role in setting high standards of corporate conduct.  The AUSTRAC allegations, if proven, show an abject failure of corporate governance and risk management.  The failure to make proper disclosure to the market regarding those failures adds insult to injury for shareholders.”

After news of the AUSTRAC legal proceedings became public, CBA shares dropped from an intra-day high of $84.69 on 3 August 2017 to an opening price of $80.11 on 7 August 2017, a significant movement for an otherwise stable stock.

“Our investigations and analysis show that this drop was in the top one per cent of price movements that CBA experienced in the past five years, making it apparent that the news was of material significance to shareholders,” Mr Watson said.

Hugh McLernon, Director of IMF Bentham, said that from today, shareholders could register their claims on the IMF website as work is finalised by the solicitors and counsel on the Federal Court pleading to commence the class action.

“CBA is facing most serious allegations from AUSTRAC, and there are serious questions to be answered about what the company knew and when,” Mr McLernon said.

In a statement today released to the ASX, CBA noted that is has not been severed with any legal proceedings:

Commonwealth Bank statement regarding potential shareholder class action

Wednesday, 23 August 2017 (Sydney): We are aware that Maurice Blackburn and IMF Bentham announced today that they are investigating a potential shareholder class action against Commonwealth Bank.

Commonwealth Bank has not been served with any legal proceedings.

We will keep the market informed of developments.

 

 

CBA ‘falls short’ on climate policy

From InvestorDaily.

CBA released its first ‘Climate Policy Position Statement’ yesterday as part of its annual report, in which the bank committed to both decrease the intensity of its business lending and reduce its own emissions.

However, according to environmental financial group Market Forces, CBA has failed to honour its previous commitment to the Paris Agreement goal to limit global warming to 2 degrees.

Market Forces executive director Julien Vincent said CBA’s position statement demonstrated they were “not even pretending” to make an effort.

“Unlike the bank’s peers in Australia and overseas that are taking concrete steps to avoid the most carbon intensive sectors, Commonwealth Bank clearly lacks either the interest or competency to fulfil its commitment to help hold global warming below two degrees,” Mr Vincent said.

According to CBA’s position statement, the bank would “target an average emissions intensity decrease of our business lending portfolio consistent with our commitment to a net zero emissions economy by 2050”.

However, the Market Forces analysis suggested this statement was vague and lacking in detail.

“The wording of this statement is very concerning as it is aspirational but no hard targets are being set,” the analysis said.

“It also covers the bank’s entire business lending, leaving room for some sectors to increase while others decrease. It is also a target that could conceivably be met by adding more renewable energy to energy portfolios (which is of course positive) but not necessarily requiring reductions on exposure to fossil fuels.

“This offers no confidence whatsoever that Commonwealth will reduce its fossil fuel exposure.”

Mr Vincent said the policy statement left “the door wide open” to continue lending to fossil fuel projects.

“That in itself should be enough to conclude this flimsy document has no relationship with the goal of holding global warming to less than 2 degrees,” Mr Vincent said.

The analysis also compared CBA’s commitments in renewable energy lending with its peers and found it to be “a slightly lower commitment pro rata than those of the other major banks”.

In light of what Market Forces called a “dismal” position statement, the environmental group has declared its intention to lodge a shareholder resolution against the bank.

CBA provides an update on customer and employee review and remediation actions

CBA released another update itemising the status of a number of open compliance and other process issues and their remediation programmes. Clearly disclosure is on the minds of the CBA currently!

In the course of reviewing our products and processes and where we see issues, we report to our regulators and fix these for our customers. In addition to updates on a number of customer review and remediation programs in the Annual Report 2017 released today, we are providing an additional update on other issues we are putting right for our customers and employees. This is not an exhaustive list of all regulatory matters, however the following have now reached some key milestones:

Our review of superannuation payments

Earlier this year, we started a review of superannuation payable to our part-time employees working additional hours at single-time rates. As part of this review, we also expanded the scope to all employees and all types of payments going back eight years. This included looking at superannuation and the impact on leave and allowances paid since 1 July 2009 when the Australian Tax Office’s Superannuation Guarantee Ruling was issued.

This review is ongoing and the precise amounts are to be determined. The first tranche, which will commence shortly, is estimated to be $16.7 million plus interest, equating to an average amount per employee of approximately $463 plus interest. The expected total payments and program costs have been conservatively provided for in previous financial years.

We will be contacting the 36,000 current and former employees who are eligible for additional payments.

Refund for some Credit Card Plus insurance customers

In 2015, we identified that some customers who purchased Credit Card Plus insurance (providing cover for a range of circumstances) may not have met the employment criteria, meaning they may not, if the need arose, have been able to receive certain benefits under the policy. We self-reported this issue to the Australian Securities and Investments Commission in 2015, fixed the issue and began working with ASIC on a remediation program.

These customers remain eligible for various benefits of Credit Card Plus insurance such as Death and Terminal Illness, but may not have been eligible to receive benefits for Involuntary Unemployment, Temporary and Permanent Disability. It was not intentionally sold to customers who were not eligible. We have agreed with ASIC to refund these customers who were not eligible to receive these benefits for the period between 2011 and 2015. We will shortly commence refunding customers.

We expect the refunds to total approximately $10 million, including interest, for around 65,000 customers, with an average refund of approximately $154 including interest.

We will continue to engage with ASIC on their wider industry review into consumer credit insurance.

Refund for some Home Loan Protection insurance customers

In February 2016, we identified that some customers who had purchased Home Loan Protection insurance had been charged an incorrect premium amount or had incurred premium charges before the home loan was drawn down. Both issues were self-identified and reported to ASIC in 2016.

This investigation is ongoing, however so far we have refunded approximately 9,600 customers a total of approximately $586,000 including interest, with an average refund of approximately $61 including interest.

Essential Super

ASIC has expressed a concern that some customers may have been given personal advice rather than general advice during the sale of Essential Super. We continue to discuss this topic with ASIC.

Charges on disputed card transactions

In July 2017, we proactively notified ASIC that when refunding disputed transactions on customers’ cards, while the transaction itself was correctly reversed, certain charges associated with the disputed transactions were not always correctly adjusted. We reviewed the 4.5 million disputed transactions going back to 2009 and will shortly commence refunding approximately $5 million including interest for around 355,000 customers, with an average refund of approximately $14 including interest.

Deceased estates

Today, ASIC was notified about an issue affecting some insurance products, where for a number of accounts, a confirmation of the cancellation of an existing insurance policy may not have been sent to the deceased estate. At this stage, the number of customers impacted is expected to be below 1,000. We are currently undertaking a detailed investigation back to the year 2000 to confirm the number of affected customers and will contact their estates and remediate if appropriate.

All of the above amounts have been appropriately provided for in previous financial years.